Switching to an electric company car is no longer a niche move. Zero-emission cars made up 19% of all new UK registrations in 2024, with 382,000 first-time registrations – a 22% increase on the year before (Department for Transport, 2025).
For directors and staff, the real attraction is benefit in kind (BiK) savings. From 6 April 2025, fully electric company cars fall into a 3% BiK band for 2025/26, with future increases announced years in advance. HMRC policy papers confirm that appropriate percentages for zero-emission vehicles will rise gradually through to 2029/30, while still favouring electric over petrol and diesel.
At the same time, employer national insurance costs are rising. Class 1A national insurance contributions (NIC) on BiK, including company cars, is 15% in 2025/26. That makes it even more important to use BiK savings wisely – especially if you are looking at a salary sacrifice scheme for your team.
In this article, we explain how BiK savings on electric company cars work, compare real-world monthly costs with petrol and hybrid cars, and outline how salary sacrifice can help directors and employees cut tax, support cashflow and keep an eye on long-term risks.
Why electric company cars are still attractive in 2025/26
Despite tax changes elsewhere, electric company cars still sit in very favourable BiK bands. For 2025/26, the appropriate percentage for fully electric vehicles (EV) is 3%. By contrast, many petrol and hybrid company cars fall into bands of 25% or higher, depending on CO₂ emissions and electric range. HMRC guidance on the “appropriate percentage” makes clear that higher-emission cars face significantly steeper charges.
At a policy level, HMRC and the Office for Budget Responsibility have set out a long-term path for company car tax rates. Appropriate percentages for zero-emission vehicles increase by one percentage point a year from 2025/26 to 2027/28, then by two percentage points a year in 2028/29 and 2029/30. That still leaves electric cars well below the highest bands for petrol and diesel vehicles, which will reach up to 39%.
For business owners, that matters in three ways.
- Attraction and retention: Many employees now expect employers to consider greener benefits and car schemes.
- Predictability: Knowing the BiK rates up to 2029/30 helps you model long-term BiK savings and employer NIC costs.
- Cashflow: Lower BiK on electric cars, combined with higher employer NIC rates, means the gap between an efficient EV and a high emission car is wider than ever in real cash terms.
If you are thinking about changing your fleet policy or adding salary sacrifice options, it is worth modelling the numbers before you commit. We can work through those with you as part of your regular tax planning through our business advisory service.
How BiK savings on electric cars work
The starting point is the BiK calculation HMRC uses for company cars. In simple terms you:
- take the car’s P11D value (list price plus most accessories)
- multiply it by the appropriate percentage for that car (3% for a fully electric car in 2025/26)
- multiply that figure by the employee’s income tax rate (20%, 40% or 45%).
Example: electric company car
- P11D value: £40,000
- BiK percentage (2025/26 zero-emission): 3%
- Taxable benefit: £1,200
- For a 20% taxpayer: £240 per year, £20 per month
- For a 40% taxpayer: £480 per year, £40 per month
Now compare this with a petrol company car of similar value in a 30% BiK band:
- P11D value: £40,000
- BiK percentage (typical mid-range petrol): 30%
- Taxable benefit: £12,000
- For a 20% taxpayer: £2,400 per year, £200 per month
- For a 40% taxpayer: £4,800 per year, £400 per month
The difference in monthly income tax alone is about £180 for a basic rate taxpayer in this example – and £360 for a higher rate taxpayer. On top of that, the employer pays Class 1A NIC at 15% on the BiK amount. For the electric car, that is £180 per year; for the petrol car, it is £1,800.
These numbers are why BiK savings on electric company cars are still powerful, even as rates start to edge upwards.
Salary sacrifice: Turning BiK savings into lower monthly costs
Salary sacrifice schemes allow employees to give up part of their gross pay in exchange for a non-cash benefit, such as an EV. HMRC calls these arrangements “optional remuneration arrangements” and sets specific rules on how they are taxed.
The key point is that cars with emissions of 75g/km CO₂ or less – including fully electric vehicles – are outside most of the extra salary sacrifice charges that apply to higher emission vehicles. Instead, they are taxed on the normal company car BiK basis, which is where the BiK savings arise.
A typical salary sacrifice arrangement might look like this.
- The employer sets up a framework with a leasing provider.
- The employee agrees to sacrifice a fixed amount of gross salary each month in return for use of an electric car.
- Income tax and employee NIC are calculated on the reduced salary plus the BiK charge.
- The employer saves employer NIC on the sacrificed salary but pays Class 1A NIC on the car benefit.
Done properly, the arrangement can produce combined BiK savings for both sides.
- Employees: Lower income tax and NIC, plus access to a new electric car with one fixed monthly cost including maintenance and insurance (depending on scheme design).
- Employers: Lower employer NIC on salaries and a valued benefit to support recruitment and retention.
- Directors: Ability to structure their own package tax-efficiently, while setting a clear policy for the wider team.
However, salary sacrifice must be set up carefully. You must protect national minimum wage compliance, consider affordability if interest rates rise and think about how the scheme will work for leavers and those on maternity, paternity or long-term sick leave. This is an area where tailored advice is essential.
Practical pros and cons for owners and staff
Electric company cars and salary sacrifice arrangements are attractive, but they are not risk-free. Before you rely on BiK savings, it is worth weighing the practical pros and cons.
Key advantages
- Very low BiK rate: A 3% BiK rate in 2025/26 keeps monthly tax on an electric company car far below that on a typical petrol or hybrid, even after planned increases. Some newer plug-in hybrids benefit from a temporary BiK easement where emissions have risen due to new testing standards, but for most drivers the BiK gap between a fully electric car and a typical petrol or standard hybrid remains substantial.
- NIC efficiency: Employers save 15% NIC on the sacrificed salary, although they pay 15% Class 1A NIC on the BiK – overall this often remains favourable where the car would otherwise be funded personally.
- Greener business image: A well designed electric car policy supports broader environmental, social and governance (ESG) commitments and can sit neatly alongside other staff benefits.
Key risks and points to watch
- Future tax rises: BiK percentages on electric cars are confirmed to increase beyond 3% – and HMRC has already legislated further rises from 2028/29 onwards. You need to factor this into any scheme that runs for three to four years.
- Scheme design: Poorly drafted documentation, unclear leaver rules or inconsistent eligibility criteria can lead to disputes and unexpected tax charges.
- Lower-paid staff: Salary sacrifice cannot take pay below the legal minimum. That may restrict access for some employees and requires careful payroll checks.
- Admin and reporting: Company cars and salary sacrifice arrangements must be reported correctly on P11D or through payrolling benefits. Mistakes can be costly once HMRC reviews your records.
- Post-Budget: From April 2028, drivers of electric and plug-in hybrid company cars will also pay a new mileage based tax, currently set at 3p per mile for fully electric cars and 1.5p for plug-in hybrids. This will sit alongside BiK and NIC, so long-term fleet planning should factor both in rather than looking at BiK in isolation.
For many SMEs, the balance still favours EVs, but the numbers should be checked for your actual fleet, staff profile and local charging situation – not taken on trust from generic calculators.
Making the most of BiK savings on electric cars
Electric company cars and salary sacrifice arrangements can offer meaningful BiK savings in 2025/26. A 3% BiK rate for fully electric cars, confirmed future bands and clear HMRC guidance give us a solid framework for planning – but they do not remove the need for careful design and regular review.
Directors need to understand how BiK savings interact with rising employer NIC rates, leasing costs and their wider reward strategy. Employees need clear communication on what they are giving up, what happens if their circumstances change and how the tax treatment works in practice. A well structured policy can improve staff retention and employer branding; a poorly structured one can create confusion and unexpected tax bills.
If you are considering an electric car scheme for your business, or want to sense check an existing arrangement, we can help you model the BiK savings, NIC costs and cashflow impact across different scenarios. As part of our ongoing support, we can review clients’ benefits packages and company car policies so they stay aligned with current HMRC rules and future rate changes.
To explore benefit in kind savings on electric company cars and salary sacrifice schemes for your business, contact us and we will talk through your options.